Tencent’s WeChat to Tap Mobile Users’ Pockets With Games

Tencent Holdings Ltd. (700), China’s largest Internet company, will introduce games aimed at mobile users of its WeChat messaging service in the next few months to boost revenue after posting profit that beat analyst estimates.

Tencent rose as much as 5.5 percent, headed for the highest since it started trading in 2004, after the Shenzhen-based company said it was working on the pipeline of games for WeChat, known as Weixin in China. Billionaire Chairman Ma Huateng is counting on the app to bolster revenue and earnings growth as consumers spend more time on smartphones and tablets.

“WeChat without doubt is the app with largest traffic in China,” Deco You, an analyst at Beijing-based Internet consulting group iResearch, said by telephone. “WeChat needs five to 10 years to become fully monetized.”

The Internet company is trying to commercialize WeChat to compete with Sina Corp. (SINA)’s Twitter-like Weibo. Alibaba Group Holding Ltd., China’s largest e-commerce company, bought an 18 percent stake in Weibo for $586 million last month.

“On the mobile side, we’ll try to assemble a broad collection of games,” Tencent President Martin Lau said on a conference call yesterday. “We’ll try to source good games.”

Monthly active user accounts for the messaging service surged more than threefold from a year earlier to 194.4 million in the first quarter, Tencent said yesterday.

Profit Climbs

The company’s net income rose 37 percent to 4.04 billion yuan ($657 million) in the three months through March, helped by better advertising and e-commerce revenue. Profit exceeded the 3.75 billion-yuan average of eight analyst estimates compiled by Bloomberg before the results.

Tencent climbed 5.2 percent to HK$288.60 as of 11:42 a.m. in Hong Kong trading, headed for the highest closing price since its initial share sale in June 2004. The stock has advanced 16 percent this year, compared with a 2 percent gain for the benchmark Hang Seng Index.

WeChat is projected to have at least 400 million users by the end of this year, Alicia Yap, an analyst at Barclays Plc in Hong Kong, wrote in a March 13 report. If WeChat provides games and related services, it could produce annual revenue of as much as 2.16 billion yuan, Yap wrote.

The app is “quite strong” in Southeast Asia, especially in Singapore, Malaysia and Indonesia, Tencent’s Lau said yesterday. WeChat has more than 40 million users outside China.

QQ Service

Tencent’s QQ instant-messaging service had 825 million monthly active user accounts at the end of March, a 9.8 percent increase from a year earlier. It had 798 million accounts at the end of December.

The company plans to offer games that can be downloaded and played online, either on smartphones or lower-end feature phones.

Tencent is estimated to post profit growth of about 24 percent this year, putting it on course for the smallest increase since 2005, according to the average of analysts’ forecasts and data compiled by Bloomberg.

First-quarter online advertising revenue increased 57 percent from a year earlier to 849.5 million yuan. Sales of value-added services, including mobile games, rose 29 percent to 10.7 billion yuan, representing 79 percent of total revenue.

WeChat poses a challenge for China Mobile Ltd. (941), whose revenue for text messaging, its most profitable business, fell 4.8 percent to 44.2 billion yuan last year.

Tencent found preliminary solutions for state-owned carriers concerned that WeChat was eating into their profits, Chairman Ma said this month, without providing more details. The company is looking at opportunities for commercial cooperation with Chinese carriers, it said yesterday.

To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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